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You are currently in the middle of the audit for FSL and have been accumulating sufficient appropriate audit evidence to conclude on the financial statements

You are currently in the middle of the audit for FSL and have been accumulating sufficient appropriate audit evidence to conclude on the financial statements for the year ended. The following information has come up and you have been asked by the partner to evaluate the information you have and to write audit procedures that can be used to follow-up. You are required to be specific as to what the issue is and then provide a clear follow-up audit procedure. Should anything else arise in the notes, your partner also wants your thoughts on them.

Risk has already been assessed with control risk and inherent risk assessed as low to moderate. All planning has been done and you are in the middle of the audit. Materiality was appropriately calculated at $185,000.

On January 22, 2022, FSL staff came to work early in the morning to find one of the large buildings that housed some hill grooming equipment on fire. By the time the fire department managed to contain the fire, the building and all contents were destroyed. According to FSL's controller, the loss amounted to $2,200,000. This loss includes the building and the equipment. The controller also stated that their insurance policy covers 50% of the loss. The Lodge was closed for four days due to the fire and FSL's has put in an application for business interruption insurance.

FSL entered into an interesting loan agreement with the Snowflake Bank of Canada (SBC) during 2021. SBC provided FSL with a $3,000,000 capital expansion loan to make improvements to the hotel and expand the restaurant at the hotel. The loan was advanced to FSL in September of 2021. The loan is a 15-year loan with annual payments beginning on December 25,2022 of $200,000 plus accrued interest. Interest is variable and the variable rate for each year is based on one-tenth of the average weekly accumulation of snow that falls during the months of the January and February of the year under audit. The rate is capped at 2.47%.

The owner of FSL also owns TippyPans Foods Distribution (TPF). TPF is a medium sized distribution company that supplies restaurants with all their food supplies. The owner of FSL felt TPF was a good fit to manage food costs for FSL. During the year TPF invoiced FSL for $1,600,000 for food deliveries for the year. TPF has distribution contracts with numerous restaurants in the area.

In September 2021, FSL was contacted by the Slim Jim Ski Hill (SJS) located about 50 kms from FSL. SJS had purchased two large snow making machines but found they were too large for the SJS hill. FSL agreed to trade two of its smaller snow making machines for the two that SJS had. In addition to the trade of the machines, SJS agreed to pay for the transportation of all of the machines at a cost of $5,000.

FSL contracts the snack shack at the top of the ski hill to Buster's Bites (BB). BB has full control of the snack shack and in return pays FSL 5% of gross revenues received during the year. BB pays FSL the royalties by the 15th of each month based on the previous months' revenues. The contract allows for FSL to examine the annual revenues of BB to ensure that they are compliance with the agreement. The own of FSL wishes to determine if BB is complying with the agreement and has asked your firm for advice on what he could do

As the external auditor, what are the inherit risks, control risks and detection risks? conclude on materiality and identify the accounting issues.

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